Bank downgrades stock of Polish synthetic rubber firm Synthos

16 July 2013 10:15  [Source: ICIS news]

LONDON (ICIS)--WOOD & Company has downgraded the stock rating of Polish synthetic rubber producer Synthos to ‘Sell’ as the investment bank no longer sees any scope for a sustained butadiene (BD) price recovery in the second half of this year, the bank said on Tuesday.

“After easing 51% year on year in June, Asian butadiene prices have taken an abrupt turn for the worse in July to date, with prices plummeting 26% month on month,” Piotr Drozd, a chemical industry analyst at the WOOD & Company, noted in a report on Poland-based Synthos.

“On top of the soft downstream demand, we see risks of structural oversupply in Asia, driven by continued BD/SBR [styrene butadiene rubber] capacity additions [and] this, in turn, implies limited pricing rebound potential, as well as further downside to European benchmark prices,” he added.

Despite a 15% year-on-year increase in China’s car output in January-May 2013, Asian BD prices have dropped 49% in the year to date, burdened by high rubber inventory levels, 50-70% operating rates of SBR producers and high output levels from Asian crackers, Drozd said.

The negative spill-over effect on the export-orientated European BD markets has sent contract prices down 20% month on month to €1,000/tonne (€1,299/tonne) this month, while Asian spot prices continued to head south to €640/tonne in the first two weeks of July, he added.

The fall in BD contract prices, which form the basis of SBR pricing, has thrown the SBR market into some confusion, market players have informed ICIS.

Looking further ahead, Drozd continued to see a difficult environment for BD and SBR producers.

“With [an estimated] China BD capacity addition pipeline of 820,000 tonnes in 2013 and 1.65m tonnes – 11% of global and 27% of Asian consumption – by the end of 2017, we believe that the BD price recovery may prove to be muted, especially in light of the poor visibility of a pick-up in global replacement tyre demand,” he said.

($1 = €0.77)

By: Will Conroy
+44 20 8652 3214

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